Small Value Payments Co., a big-bank electronic check processing consortium that was formed in October, could become the catalyst for widespread adoption of electronic check presentment, industry experts say.
A spinoff from the New York Clearing House Association, the venture, known as SVPCo, acts as a multilateral clearing and settlement network for electronically presented checks.
In electronic check presentment, or ECP, data transmissions speed check information to paying banks. It could be a step toward the total elimination of paper. As ECP now operates, paper checks continue to be physically transported on a slower schedule.
SVPCo is owned by BankAmerica Corp., Bankers Trust Corp., Bank of New York Co., Bank One Corp., Chase Manhattan Corp., Citigroup, European American Bank, First Union Corp., Fleet Financial Group, Marine Midland Bank, Wells Fargo & Co., and Republic New York Corp.
Chase vice chairman Joseph Sponholz is chairman of the company.
"I think we have a realistic chance of making it," Henry C. Farrar, senior vice president of the New York Clearing House, said of the elusive paperless processing goal. "The time has arrived."
As with so many bank technology advances, the adoption rate for ECP has significantly lagged hype and expectations. Most current ECP programs are offered by the Federal Reserve.
Of the estimated 65 billion U.S. checks written annually, only a small percentage are presented electronically. Much of that volume is handled by the Federal Reserve, which electronically presented 3.7 million items to paying banks in 1997, up 19% from 1996.
Private-sector attempts have been less successful, but banks and clearing associations are trying to change that. SVPCo, with its for-profit charter, has been gathering commitments from its bank owners to build meaningful volumes.
Wells Fargo, through the former Norwest organization, is expected to begin exchanging electronic data with SVPCo by yearend. First Union and BankAmerica are due to start in the first quarter of 1999.
The New York Clearing House members are already required to exchange checks via ECP.
Officials say ECP can save the industry $5.1 billion in annual processing costs. And it helps banks in their efforts to identify potentially fraudulent items.
The American Bankers Association said banks lost $512 million from check fraud last year, up 5% from 1995.
"Until this point, banks have been toying around with ECP," Mr. Farrar said.
He called ECP "a critical step," providing a trusted network that banks can use to develop even more complex interbank programs such as exchanging digitized images of checks, processing images of return items, and truncating checks at the bank of first deposit.
SVPCo's board has agreed to adopt a set of rules established by the Electronic Check Clearing House Organization, or Eccho, a bank-owned rulemaking body for bilateral ECP exchanges.
"Members and participants of SVPCo and Eccho will be able to exchange ECP files across clearing house membership boundaries," said David Walker, executive director of Dallas-based Eccho.
Vincent R. D'Agostino, senior vice president at Chase, said his bank has been struggling with electronic check presentment issues for several years. His boss at Chase, Michael Pasiecki, is chairman of Eccho.
"This time I think it will really happen," Mr. D'Agostino said, adding that ECP makes great sense for the industry to pursue. "The consensus around the industry is that checks will be around for a while."
Catherine Allen, chief executive officer of the Banking Industry Technology Secretariat, an offshoot of the Bankers Roundtable, said her organization strives for and supports such collaborative endeavors.
BITS, which has the chief executive officers or presidents of Citigroup, Chase, First Union, and other top banking companies on its board, has endorsed both SVPCo's multilateral clearing system and Eccho as a policy body.
"We are asking banks to commit to implementation of ECP as a first step toward electronification of the check," Ms. Allen said. "As an industry, we can't keep processing all of this paper."
She said she hopes to see half of all checks processed via ECP by 2001. BITS will host an industry forum on the subject this month.
The movement is gathering steam in other ways. BITS has been coordinating dialogue between the Fed and Independent Bankers Association of America.
Viveca Y. Ware, director of payments systems at IBAA and a member of BITS' advisory group, said she has been working with the Fed this year to help bankers understand what ECP is and why they should consider it.
"An increasing number of banks realize that it does have benefits," she said.
Fred Herr, senior vice president of the Federal Reserve Bank of Atlanta and a member of the Fed's retail product office, said the likelihood of Fed ECP services linking with private sector initiatives such as SVPCo increases as computer standards converge.
He said a report last January on the central bank's role in payment systems, prepared by a committee headed by Fed vice chairman Alice Rivlin, set the stage for the Fed's collaboration with the private sector. It can be an important intermediary, given that most community banks rely on the central bank for check clearing.
"We anticipate-and hope that it won't be too far out-to get a linkage with the Federal Reserve so that those items that are cleared largely for the community banks can link in to us," said Mr. Farrar of SVPCo.
For next year, the Federal Reserve Bank of Minneapolis is planning a "proof of concept" ECP program for the 99 banks based in Montana. The launch date would be in April, pending Federal Reserve Board approval.
The program would involve check electronification supported by document imaging technology and truncation at the earliest point in the collection process.
"There are a lot of miles and not as many checks there, so transportation is extremely difficult," Mr. Herr said. "Electronics will help speed up the process."
Of Montana's 700,000 daily items, 35% are processed using the Fed's ECP system, he said.
Tempi Ruth, executive manager of the Montana Bankers Association, said bankers there are eagerly anticipating the cost savings, but not all will participate at first because of other priorities such as year-2000 compliance.
Some are concerned with Regulation CC, the Fed rule that specifies funds availability schedules for deposited checks, based on prompt sending of return items back to the bank of deposit. About 1% of deposited items have to be returned.
"Reg CC can be a stumbling block," said Leigh Bohn, manager of business development at the Federal Reserve's branch in Helena, Mont. "Certainly our pilot will identify whether banks can find a way around this" with imaging.
